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The sharp slowdown is a painful setback for China, which last year was leading the pack of major economies in its rebound from the pandemic. Since then, countries such as the United States have largely reopened. But Beijing’s leaders have doubled down on their “zero covid” approach of stamping out every outbreak through draconian measures, arguing too many will die if China were to lift restrictions and reopen.
This strategy has become increasingly controversial and economically damaging. The arrival of more infectious variants this year has meant longer and more severe lockdowns are needed to bring outbreaks to heel. The two-month lockdown of China’s most populous city, Shanghai, was particularly devastating.
Last week, China’s Premier Li Keqiang visited the coastal city of Fuzhou to meet with officials from across the southeastern industrial belt about how to stabilize the economy. According to the official Xinhua News Agency, Li said the situation was at a critical point and urged officials to steer the economy “back on track.”
Photographs in state media showed Li in meetings in Fuzhou where no one was wearing a mask, one of several maskless publicity appearances he has made recently. These have been interpreted by some as a show of support by Li toward a faster return to normalcy, even as his boss, Chinese President Xi Jinping, has declared the nation’s continued commitment to “zero covid.”
Shanghai fears a second lockdown as China battles BA.5 outbreaks
The repeated lockdowns have laid low the economy over recent months, leaving many people unemployed and underemployed, especially in service industries. The jobless rate of people ages 16 to 24 in cities reached 18.4 percent in May, the highest since Beijing started to publish the measure in 2018.
In April, not a single automobile was sold in Shanghai, with the city’s 25 million residents confined to their homes.
“The Chinese economy is in a very bad shape now,” said Tianlei Huang, research fellow at the Peterson Institute for International Economics in Washington. “Consumer demand is very weak.”
Huang said he expects China to miss its target of 5.5 percent economic growth for the full year because of the severity of the lockdowns. About 4 percent will be more realistic, he said.
“Even in the most optimistic scenario, China will not be able to achieve its growth target for the full year,” he said.
The bleak picture is a far cry from a little more than a decade ago, when China was routinely posting growth close to or exceeding 10 percent.
The lockdowns have interrupted factory production, snarling supply chains and delaying the shipment of goods to the rest of the world. These supply problems have been a major driver of U.S. inflation, which has soared to 9.1 percent. Consumer prices in China are only up 2.5 percent because of depressed demand.
Shanghai started to reopen at the beginning of June, but the arrival of the BA.5 coronavirus variant is threatening new lockdowns. The northwestern city of Lanzhou has put four of its districts under a seven-day lockdown. Shanghai returned some housing complexes to lockdown, while ordering millions of people to be tested again.
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“The Chinese economy in the second half of 2022 still faces the uncertainty of periodic lockdowns in response to new covid breakouts,” said Shang-Jin Wei, a finance professor at Columbia University. “If a recession breaks out in the U.S. or Europe, it will add further difficulty to the Chinese growth.”
Huang said foreign investors have been “voting with their feet” by shifting production to other countries because of the economic uncertainty. “The recent very negative outlook of the foreign business community is probably not just some noise in the short term but may have some longer-term implications,” he said.
Meanwhile, there are signs of distress in China’s housing market. An increasing number of home buyers are refusing to pay mortgages on unfinished projects, Bloomberg News reported this week, citing financial researchers, a worrying sign for banks and for the ruling Communist Party ahead of crucial leadership meetings in the fall.
China only acknowledged its economy contracting in the first quarter of 2020, as it began battling the coronavirus. Since then, the country’s statisticians have reported growth each quarter.
Independent economists take China’s official data as a general gauge, though the precision of the figures is widely distrusted. Li, the premier, once called China’s figures “man-made” and “for reference only” during a private meeting, according to a U.S. diplomatic cable released by WikiLeaks.
Vic Chiang in Taipei, Taiwan contributed to this report.